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With nice weather finally arriving in New England, I’ve seen numerous lemonade stand ideas pop up in my neighborhood. It’s been fun to support the neighborhood kids and sample their wares. Some have been selling lemonade and brownies. Others have more traditional stands.
One thing that struck me is how much the pricing varies. I thought I would teach entrepreneurial finance for kids today for my 100 Days of Play contribution by looking at pricing your [successful] lemonade stand.
Pricing Lemonade for Your Stand
COGS = Cost of Good Sold
There’s nothing like an acronym to make something seem difficult. Let’s talk about how much you should charge for your lemonade stand.
Step 1: What are your ingredient costs?
We’re going to start with basic cost accounting, which is to say, “How much does it cost you (assuming you had to pay for it yourself?”
water: Let’s assume the water is free from the tap.
ice: Let’s assume you’re getting ice from your freezer and not buying it from the grocery store.
sugar: I’m going to guess that it takes just a few tablespoons of sugar to make one quart of lemonade.
- I bought a 5-lb. bag for $1.89.
- $1.89 / 5 = $0.378 per pound of sugar
- 2.25 cups = 1 lb.
- $0.378 / 2.25 = $0.168 per cup of sugar
- 1 cup = 16 tablespoons
- $0.168 / 16 = $0.0105 per tablespoon
So … one tablespoon of sugar is basically a penny.
lemons: The price of lemons varies from 50 cents to $1 per lemon, I’m guessing. Let’s say you use two lemons and they each cost $2.
Note that lemons are your most expensive item. We call that a “cost driver” because it basically determines the cost of your final product, in this case, a glass of lemonade.
I know there are entrepreneurial kids out there thinking things like:
- I can grow my own lemons for FREE! Yes! Great idea. Then your cost is just sugar and you have a cash machine!
- I can buy lemons in bulk to save money! You are thinking like an entrepreneur! Yes!!!
- I can buy lemons on sale. That works for me!
cups: Are you going to use disposable paper or plastic cups? If so, you’ll have to add in the cost for these. Or maybe you can use non-disposable cups from your house?
A pitcher of lemonade is going to cost about $2. How many cups can you get from it? It depends on the cup size but a pitcher typically holds 4 pints or 8 cups.
$2/8 cups (or more if you use small Dixie cups) = $.25
In other words, our COGS (Cost of Goods Sold) for one cup of lemonade is a quarter.
You can see that my son is selling lemonade at cost. He is using very small cups so he might be getting 12 cups and since they are not disposable, he doesn’t have the additional cost for the cup. Still, if he had to buy his own ingredients, he would be making … NOTHING!
In the restaurant business, you typically charge a mark up the food cost by 400%. So, if the cup of lemonade costs YOU $.25, you’d charge $.25 x 4 = $1 per cup.
Does this seem like too much? Well, you don’t have the same costs that a restaurant has like paying rent or hiring staff, so you can mark up your lemonade less if you like. How about by 200%?
$.25 x 2 = $.50 per cup
Of course, pricing is also what the market can bear. When PickyKidPix and Grasshopper and Sensei ran their lemonade stand, they charged $1 per cup (with the tiniest paper Dixie cup that you use for brushing your teeth) and gave a nickel rebate. That was their promotion. They made a lot of money that day too!
Peg + Cat: The Lemonade Problem by Jennifer Oxley and Billy Aronson
It’s not easy to run a lemonade stand, especially when you are bartering for marbles. Pricing is hard to figure out. When Peg and Cat’s business picks up, they have another problem. No cups! More bartering is required in a complex transaction of cups for cookies, red peppers, and dancing. Peg and cat learn that running a business requires fast and flexible problem solving skills. Young entrepreneurs will relate the unforeseen challenges of running a lemonade stand! [picture book, ages 4 and up]
The Monster Money Book by Loreen Leedy
If your child likes money or wants to learn more, I really like The Monster Money Book that goes over basic entrepreneurial concepts just like our pricing the lemonade exercise but in a more fun way.
The Lemonade War by Jacqueline Davies
Here’s my chapter book recommendation that just happens to have a lemonade stand theme. In this case, it’s war! Two competing lemonade stands on the same street. Not only is this a great book that kids love, but it also has some marketing concepts slipped in! Play can be so educational!
Question for you: Are they pricing their lemonade correctly?!
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